CSTJ Lewis (“His Spelling Casts a Spell”) Carluzzo’s docket runs the gamut.

First up, Ariana K. Uchizono, T. C. Sum. Op. 2023-21, filed 6/21/23. Ariana is ambitious and multilingual, so upon graduating college she goes to work for a translating service. CSTJ Lew goes over Ariana’s job description closely. Ariana wants something more, so she goes for a MBA at UCLA, and deducts the costs as an unreimbursed employee business expense, for a year when that was still OK. The translating outfit would only reimburse for language courses, and Ariana didn’t take any.

CSTJ Lew goes over Ariana’s coursework and transcript, and the job description for the internship Ariana got at a major toy company, from which she got a permanent job, and decides the MBA fitted Ariana for a different job. Reg Section 1.162-5(a) denies deductions for training for a different job.

“In this case, the courses petitioner took as part of her M.B.A. program qualified her to perform tasks that were significantly different from the tasks she had performed in her employment with [translators]. A number of those courses related to research and data analysis. No doubt some of the courses might have refined and improved the skills necessary for petitioner’s employment with [translators], insofar as a foundation in accounting, finance, and management could be helpful to anyone involved in the operation of a business. However, petitioner’s M.B.A. studies were more specifically oriented towards the job for which she eventually left [translators].” T. C;. Sum. Op. 2023-21, at p. 5. (Name omitted).

Unhappily, Ariana didn’t help her case on the stand. I feel for her trusty attorney; having a candid, truthful client can be a burden.

“Petitioner acknowledges that she would not have felt comfortable making certain decisions required in her job with [toy co.] had it not been for her M.B.A. courses. Specifically, petitioner’s data and analysis coursework prepared her to perform her essential role with [toy co.], that is, orchestrating qualitative or quantitative online surveys and analyzing the resultant data. Simply put, without the M.B.A. degree petitioner would not have been otherwise qualified for her position with [toy co.].” T. C. Sum. Op. 2023-21, at p. 5. (Name omitted).

Next, futility. Thu L. Tran, Docket No. 16576-22SL, filed 6/21/23, never petitioned the SNOD but did petition the NOD. Thu wants to fight about liability, but that’s a nonstarter. So CSTJ is left with nothing to do.

But being CSTJ Lew, he won’t leave Thu comfortless, even though perforce he must toss him.

“In closing, we think it appropriate to note that the resolution of this matter says nothing about the merits of petitioner’s claim that the underlying liability is overstated. To that end, and independent of this proceeding, petitioner is free to pursue whatever remedies might be available to him in an attempt to give effect to his claim regarding the underlying liability. He is also free to request other administratively available collection alternatives.” Transcript, at p. 6.

Judge Elizabeth Crewson Paris has bad news for my litigator colleagues, but good news for Katrina E. White, T. C. Memo. 2023-77, filed 6/21/23. Katrina was insolvent when the bank wrote off her small business loan, hence no cancellation of debt income to Katrina.

It’s an all-too-common story of the small entrepreneur. Katrina “…owned and operated Professional Body Sugaring, LLC, in Menomonee Falls, WI.” T. C. Memo. 2023-77, at p. 2. She borrowed $15K from a bank, and claims she borrowed a further $8K from family. She made a couple payments (hi, Judge Holmes) on each, but not enough Menomonee Fallers fell for having their bodies sugared. My sources tell me this is having all or part of your personage covered with a paste of sugar, water, and lemon, which, when dried, is untimely ripp’d, taking your body hair with it.

I’m not surprised. Katrina’s operation was a great lemonade.

Sadly, as this happened, her landlord accelerated her rent for nonpayment, claiming she owed $21K. Sounds like WI follows the old commonlaw rule: landlords need not mitigate damages.

Katrina claims Section 108(a)(1)(B) relief, as she was insolvent when relieved of the bank loan debt.

IRS says Katrina wasn’t insolvent, because her landlord didn’t sue, and she didn’t pay, hence the accelerated rent wasn’t a bona fide debt.

Judge Paris sees IRS off.

“The Court disagrees. Petitioner provided a copy of the lease agreement, as well as a letter from [landlord], stating that petitioner breached the lease [in year at issue]…. The terms of the agreement creating the obligation to pay generally determine whether and in what amount the taxpayer will be called upon to pay. Under the terms of the lease, the entire amount remaining on the lease would become immediately due. The lease agreement between petitioner and [landlord] was an arm’s-length transaction for a multiyear lease on commercial real estate, and the obligation to pay was legally enforceable at the time the…small business loan debt was discharged. Nothing in the record suggests otherwise. The fact that [landlord] did not sue petitioner to collect the debt does not in and of itself mean, as respondent suggests, that it was not a bona fide debt. Respondent cites no authority for the requirement that, for the Court to determine insolvency under section 108(a)(1)(B), a creditor must bring legal action or the taxpayer’s liabilities must be brought to judgment, and the Court is aware of none.” T. C. Memo. 2023-77, at p. 6. (Citation omitted).

My “Sign On the Dotted Line” series gets a new entry from Dennis Simpson, as he’s one of the als in Noel M. Parducci and Kenneth L. Parducci, et al., T. C. Memo. 2023-75, filed 6/21/23. Dennis’s story is the strangest one in a long time.

Judge Ronald L. (“Ingenuity”) Buch tells the story.

“Mr. Simpson’s [year at issue] Form 1040 was not signed by him nor accompanied by any document showing that he authorized anyone to sign it on his behalf. An individual return must be signed by the individual required to file the return or by an agent authorized to sign on behalf of the individual. If the return is signed by someone authorized to do so, that authorization must accompany the return. Because Mr. Simpson neither signed his [year at issue] Form 1040 nor included a document showing that he authorized an agent to sign it on his behalf, the return filed as Mr. Simpson’s [year at issue] Form 1040 is not a valid return.” T. C. Memo. 2023-75, at p. 2.

Dennis disavows any knowledge of this spurious document, which was filed the last day for extension for year at issue.

“The return included two signatures: one for [Curt], a certified public accountant who signed as the preparer, and one purporting to be for Mr. Simpson.” T. C. Memo. 2023-75, at p. 2. (Name omitted).

The plot thickens.

“How Mr. Simpson’s purported signature came to be on that return is unclear. [Curt] prepared returns for Mr. Simpson and other petitioners involved in these consolidated cases. Petitioner Noel Parducci, who at the time was an administrative assistant to Mr. Simpson and petitioner Jeffrey Hoyal, obtained the returns from [Curt] and delivered them to Mr. Hoyal in his office. A short time later, Ms. Parducci took envelopes containing tax returns to the Jacksonville, Oregon, post office for mailing. Mr. Simpson’s purported return was mailed from Jacksonville, Oregon, and we infer that one of those envelopes contained that return. Notably, Mr. Simpson was not present at Mr. Hoyal’s office and lived in Southern California at the time.” Idem, as my high-priced colleagues would say.

It wasn’t until trial prep that Dennis (pro se, or he wouldn’t have raised the question; see infra) mentioned the dubious return. IRS requests a special hearing on the authenticity of the purported return.

“This new issue arose long after the Petitions in these cases were filed, and the resolution of this issue would likely affect the discovery and ultimate issues to be tried in these cases. Both Mr. Simpson and the Commissioner provided Exhibits and Prehearing Memoranda. Various witnesses testified, including JG, a forensic document examiner, who opined that the signature on the [year at issue] return was not Mr. Simpson’s signature. Mr. Simpson testified that he neither signed the return nor authorized anyone to sign the return on his behalf.” T. C. Memo. 2023-75, at p. 3. (Name omitted).

Now pay attention, as Judge Holmes would say.

“No one offered any contradictory evidence.” T. C. Memo. 2023-75, at p. 3.

Huh? IRS presumably had conducted an examination of said return. There’s no mention of TEFRA, so no FPAA in play. Did Dennis skip the audit? No Form 2848 is proffered, Dennis is pro se, so what happened at exam?  And now that Dennis woke up, and Judge Ingenuity Buch has no choice but to find on this record that Dennis didn’t file the return IRS says he filed, now what?

“An appropriate order will be issued.” T. C. Memo. 2023-75, at p. 4.

Well, Judge Buch is as good as his word, and here’s his ingenious order.

“…the Commissioner may, without motion or further leave, amend his Answer in Docket No. 17771-21 by July 28, 2023.”

Taishoff says Dennis really outsmarted himself. He never produces a return for year at issue that he says he did file. Obviously, IRS doesn’t have any except the bogus one, and produces no evidence to show Dennis did file anything. So the record shows Dennis never filed for year at issue, and Dennis never claims he did file. Hence SOL is wide open, not merely for whatever transactions are subsumed in the SNOD and pleadings, but the whole enchilada for year at issue.

What does Dennis do if IRS moves to sever Dennis for want of jurisdiction (invalid SNOD, but unlike most invalid SNOD jurisdictional tosses, the year at issue isn’t closed), issues a SFR claiming everything under the sun, and claims interest and penalties from the get go? And Dennis’ erstwhile consolidateds have meanwhile litigated their cases to a finish, leaving Dennis on his lonesome, with no issue or claim preclusion. However bad the SNOD might have been here, I doubt it would be worse than no SNOD at all.

Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan lays an oldie-but-goodie on Anthony J.A. Bryan, Jr., a.k.a. Anthony Bryan, Jr., John A. Bryan, or John Bryan, Jr., T. C. Memo. 2023-74, filed 6/20/23. You must have skin in the game.

To take NOLs per Section 172, you must have suffered a real economic loss. That does not mean buying into a couple LLCs (hi, Judge Holmes) doing movie production deals with nonrecourse promissory notes on which you never pay interest or principal. And the membership interests you get in said LLCs include no requirement to make good shortfalls in your capital accounts, pay any LLC obligations, or be obligated for cash calls.

For the promissory note story, see my blogpost “A Sour Note,” 9/3/14.

AJAB ran no risk, so gets no benefits. Ms. AJAB gets innocent spousery.

Y’know, maybe a few interest payments could save the day, and a less-insulating operating agreement might help, too. Remember, dodging highroller: pigs git fed, hogs hit et.

Antawn Jamal Sanders, 160 T. C. 16, filed 6/20/23, finds that he cannot recreate the success of the late great Wilson Pickett, for though Antawn waited ’til the midnight hour to file his petition, he was eleven (count ’em, eleven) seconds too late.

The combined efforts of amended Section 7451(b) and the Fogg-bound Harvard Law School LITC cannot save Antawn. Though he strove through the afternoon of the last day, Antawn could not get his Android mobile phone to fill out the petition forms, 160 T.  C. 16, at p. 3.

He finally abandoned the smartphone (vintage unstated), and tried his Windows PC. At 2356, he tried to log in.

“However, within one second, another Windows user successfully logged into DAWSON. Likewise at 23:57:21.379 (11:57 p.m.), Mr. Sanders successfully logged in as well. After he logged in and started the filing process, Mr. Sanders was slowed down by having ‘to do 3 other steps’ before he could actually file his Petition. Additionally, he had to refer to the instructions several times. Throughout this process and at all relevant times, DAWSON remained fully operational.

“While residing in North Carolina, Mr. Sanders filed the Petition from his computer after midnight on [Day 91]. At 00:00:09.493, he began the upload of the Petition, and at 00:00:11.693 (i.e., 11 seconds after midnight), it was filed. At the time of filing, DAWSON automatically applied a cover sheet to the Petition that states that the Petition was electronically filed and received at ’12/13/22 12:00 am.'” 160 T. C.  16, at p. 3.

You probably have sussed out the rest. Hallmark Collective puts paid to equitable tolling. Section 7502 applies to mailed-is-filed, and anyway, relinquishment of control is out, based upon Bankruptcy Court learning, where apparently practitioners become unglued more frequently than Tax Court pro ses. And Antawn started the upload nine (count ’em, nine) seconds too late. Anyway, y’all will recall that the time you start the upload is nothing to do with completing the e-filing. See my blogpost “IRS Has the Nutts,” 5/2/23.

“The regulations would deem an electronically filed document to be filed when the electronic record shows it was received. The electronic record shows that Mr. Sanders’s Petition was received 11 seconds after midnight; thus it would be untimely under the regulations that apply in the case of an electronic return transmitter. And the Petition is untimely under the amicus’s relinquished control argument. Mr. Sanders did not relinquish control of his Petition until he initiated the upload 9 seconds after midnight. In short, the narrow exceptions that might deem a petition to be filed before the Court receives it are both legally and factually inapplicable to this case.” 160 T. C. 16, at p. 7.

Finally, however inept the Genius Baristas may be in other areas, they sure can keep records. Their electronic logs follow Wilson Pickett’s lead, and show DAWSON in fact did “all things I told you, in the midnight hour.” No outages.

Takeaway, and this is a classic “Those who need it won’t read it, and those who read it don’t need it.”: Don’t trust smartphones, despite the bright words on Page 2 of the Public User Guide, that state “You can access DAWSON from your mobile device.” Just ask Antawn.

And above all, despite what Wilson Pickett said so wonderfully, don’t wait ’til the midnight hour.

The APA-based attack on Notice 2007-19, 2007-1 C.B 689, goes on apace, but Judge Patrick J.(“Scholar Pat”) Urda has the canned order in hand, opens and serves it up cold to Herbert Hirsch & Bonita Hirsch, et al., Docket No. 28898-10, filed 6/20/23.

It’s a replay of my blogpost “Oodles of Cases,” 6/16/23. And, of course, Herb & Bonita are represented by the same attorney as in the aforementioned blogpost, whom I’ll call JDIII.

Judge Scholar Pat cannot resist referring again to the “oodles of cases” wherein IRS refused to grant free-fire status to well-heeled believers that they are Virgin (Islanders), Order, at p. 3. And he has somber reasoning to go along with the copious citation of precedent.

More to come, I do not doubt.

“The freedmen are advised to remain quietly at their present homes and work for wages. They are informed that they will not be allowed to collect at military posts and that they will not be supported in idleness either there or elsewhere.”

The forgoing was part of the June 19, 1865, message of Major General Gordon Granger, commanding the Union soldiers who landed at Galveston, Texas with news that the Civil War had ended and that the enslaved were now free, giving rise to today’s Juneteenth celebration, a public holiday in the District of Columbia.

In keeping therewith, I remain at home. I’m aware I shall not be supported in idleness, whether at a military post (Heaven forfend! Been there, done that) or elsewhere, but as US Tax Court is closed per Rules 1(d) and 25(a)(5), I’m taking the day off.

Judge Patrick J (“Scholar Pat”) Urda may unleash somber reasoning and copious citation of precedent on Harvey Birdman & Diane Birdman, et al., Docket No. 28897-10. filed 6/16/23, but he prefers “oodles of cases” (See infra, as my already on their three Grey Goose Gibson lunch colleagues would say ).

The Birdmans are trying to duck the $75K cap on pre-2006 VIBIR filings enunciated in Notice 2007-19. They’re playing the APA gambit. Contrary to my usual practice, I’ll include the years at issue because they are material.

“The Birdmans move to strike the $75,000 cap in Notice 2007-19 as arbitrary and capricious under the APA. They believe that this requirement can and should be severed from the remainder of the Notice, which would effectively mean that, for tax years ending prior to December 31, 2006, the three-year statute of limitations would start whenever a USVI Form 1040 was filed with VIBIR by any person who takes the position that he or she is a bona fide resident irrespective of their gross income. This result ostensibly would render untimely the notices of deficiency issued to the Birdmans for their 2003–05 tax years.” Order, at p. 2. (Footnote omitted, but it says that 2006 is not in play because they filed both with VIBIR and IRS for that year.).

No go, says Judge Scholar Pat.

Even if Notice 2007-19 violates APA, Tax Court can only sever part of it if IRS would have treated the unchallenged portion the same. No sign IRS was granting SOL cover to anyone merely claiming Virginity. “Oodles of cases and more than a decade of litigation in this Court belie any such conclusion.” Order, at p. 3.

“Moreover, we do not believe that the rule functions sensibly without the stricken provision. Eliminating the financial limitation transforms a benefit tailored for taxpayers who lacked the incentive or ability to exploit that benefit in a financially significant manner into a safe harbor perfectly suited for those taxpayers who sought to game the U.S. – USVI mirror tax system to shield substantial amounts of taxable income. Such a change would hobble the IRS’s long-standing enforcement efforts and significantly erode the scheme designed by Congress, which established different filing requirements depending on whether one was a bona fide USVI resident.” Order, at pp. 3-4.

Wherefore, assuming Tax Court has jurisdiction to sever (and see Order at p. 4, footnote 4, questioning whether review is possible per 5 USC §701(a)(2)), the Birdmans are no better off if all of Notice 2007-19 goes away.

I give the Birdmans’ trusty attorney (whom I’ll call JDIII) a Taishoff “Good Try, Second Class.”

Henry Muhlenburg, Docket No. 14316-22S, filed 6/16/23, stars in a bench opinion by STJ Eunkyong (“N’Yawk”) Choi. He learns therefrom that, while said enactment gives him no tax cuts, it certainly does a job on his Sched A.

Hank claimed travel expenses from NC to NY for post-2018 year at issue, because he lost his NC job and couldn’t find another nearer than Excelsiorland. STJ N’Yawk says Hank might have had at least some of these allowed, except TCJA amended Section 67 to suspend these until 2026 (and don’t hold your breath until they come back).

You can still take them if you’re a performing artist, an official who is an employee of a State, an elementary or secondary school teacher, or member of the reserve component of the Armed Forces. See Section 62(a)(2). Hank, of course, is none of the above.

IRS generously folds the Section 6662 chops, and helps Hank out by finding an extra $3K of charitables at Exam that never made it onto Hank’s return.

STJ N’Yawk: “The Court is very sympathetic to petitioner. The facts and circumstances show he may have been entitled to claim the employee business expense deduction for taxable year… but for the suspension of miscellaneous itemized deductions for taxable years December 31, 2017, through January 1, 2026. However, because miscellaneous itemized deductions were suspended for taxable year … and because petitioner did not fall within any of the classes of employees entitled to deduct employee business expenses for taxable year…, he was not entitled to claim the employee business expense deduction for taxable year….” Transcript, at pp. 6-7.

Technically, that’s “before January 1, 2026,” not “through January 1, 2026,” Judge.

Quibbles aside, I had expected a lot more of these from those self-preparers who use outdated software or none at all, out-of-date forms, and don’t bother to read the current Pub 17. We’ll be getting them shortly.

The words of Judge Mark V. (“Vittorio Emanuele”) Holmes, concurring in Oakbrook, are borne out as that Obliging Jurist David Gustafson renders a daily double of T. C. Memo.s, beginning with Murfam Enterprises LLC, Wendell Murphy, Jr., Tax Matters Partner, T. C. 2023-73, filed 6/15/23. Hard to believe that it’s two weeks shy of five (count ’em, five) years since I posted the first of the eventual six (count ’em, six) blogposts on this case.

Thanks, Junior and Wendy, Dell and Linda. Great blogfodder.

Spoiler alert. It’s all about the appraisals, as IRS folds almost all the Section 170 jive. But IRS was slow with the chops, which never featured in the FPAA, so IRS has “new matter” BoP.

“In this case, the FPAA included no penalty determination. Rather, the Commissioner first asserted penalties in an amended answer to the petition that pleaded liability for gross valuation misstatement penalties under section 6662(e) and (h), or in the alternative, accuracy-related penalties under section 6662(a). Because the penalties asserted by the Commissioner in his amended answer would increase the liability determined in the FPAA issued to Murfam, they are ‘new matter’ for which the Commissioner bears the overall burden of proof. That burden includes the burden to prove the absence of ‘reasonable cause’.” T. C. Memo. 2023-73, at pp. 12-13.

IRS comes cropper on Section 6664.

“The straightforward and unchallenged trial testimony of R  (the D CPA who prepared Murfam’s Form 1065) established that D was a well-known firm with a good reputation in North Carolina, that Murfam retained D to prepare all of its returns during a three-year period and relied on it to do so, that D requested all the information it thought necessary for preparing Murfam’s returns, that D received all the information that it had requested from Murfam, that D prepared the returns in accordance with that information, and that Murfam filed the returns as they had been prepared by D.” T. C. Memo. 2023-73, at pp. 21-22. (Names omitted).

Checked all the Neonatology boxes. But that’s not good enough. Reg. Section 1.6664-4(b)(1) requires no unreasonable assumptions, no reliance on invalidity of any Reg. Section, and the usual facts-and-circumstances.

IRS’ only argument is that Murfam willfully withheld the essential statement of donor’s basis. But IRS has only the Michael Corleone classical gambit for this.

“The cited evidence does not make this showing. There is simply no evidence as to whether the advisors asked for basis information. There is no evidence as to whether Murfam provided basis information. To the extent there was basis information not provided by Murfam, there is no evidence to show why it was not provided. The reason that there is no such evidence is that the Commissioner did not cross-examine the witnesses on the point.” T. C. Memo. 2023-73, at pp. 23-24.

The valuation issue goes off on swine breeding. If you care how your bacon and Black Forest-style got from NC to your plate, read pp. 26-31.

The impact of the undervaluation is taken up in Wendell H. Murphy, Jr. and Wendy F. Murphy, T. C. 2023-72, filed 6/15/23, at pp. 63-69. They’re up for the Section 6662 gross overvaluation chop.